10 things to watch for in Apple’s earnings call

Commentary: Apple’s Tim Cook has big questions to answer

All eyes will be on Apple
AAPL, -1.54%
this afternoon when it reveals results for the crucial holiday quarter, including sales of the new iPhone 5 and iPad Mini. The stock has plunged in recent months, to $500 from a peak of $700, amid growing panic among some investors that the juggernaut is losing its mojo. Wall Street will obsess over earnings per share when the results come out. But if I were an investor, here are the other things I’d want to know about:

1. The balance sheet. Yes, really. Boring, but so important. Commentators will tell you Apple has $121 billion in cash, but this is an irrelevant and misleading figure. What really matters is how much Apple has in net liquid assets, because this is critical to understanding just how expensive — or not — this stock really is.

Rex Crumb/MarketWatch

At the end of last quarter, Apple had $58 billion in current assets and $92 billion in “long-term marketable securities,” mostly probably Treasury bills. That comes to $150 billion in liquidity. Against that, it had $58 billion in liabilities, plus (if we want to be picky) another $26 billion in off-balance-sheet liabilities, mostly contractual commitments to buy parts from suppliers. So that leaves about $66 billion in net liquid assets, or about $70 per share.

So Apple’s true stock price is really about $430, rather than $500. This is the starting point for understanding the company’s valuation. We will get updated figures tonight.

2. China sales. Sorry, fanboys, but almost everybody in America who wants an iPhone has an iPhone. Many of them seem to have several. The real story is what’s going to happen in China, and elsewhere in emerging markets. Last year, Apple’s sales in the whole Asia-Pacific region jumped 47%, but still accounted for just 23% of the total — less than Europe and barely half what the Americas make up.

3. The iPhone 17. Okay, okay, so we’re only on iPhone 5. But the issue will be when the next upgrade — to iPhone 6 — is coming. My biggest dislike of this industry for investors is the rapid replacement cycle. But that’s the game. What’s next, and when?

4. Any hint about a keyboard. Your correspondent does not have an iPhone. I probably wouldn’t own one anyway, but I am precluded from even considering one because they do not come with a real, physical keyboard, and I absolutely must have one. Millions of others are in my shoes. Steve Jobs had an obsessive dislike of keyboards, but it was foolish. Apple CEO Tim Cook could probably finish off Research In Motion, maker of the BlackBerry, by announcing an iPhone with a keyboard. Easy. Why not?

5. Plans for Apple TV. So far, sales of these have been disappointing. But I remain convinced this could be a huge source of future growth for Apple, which could dominate TV, and the living room, the way it has come to dominate smartphones. Steve Jobs allegedly had an inspiration about how to make it a much better experience shortly before he died. I want to hear what he saw, and when we’ll see it.

6. Any hints about an iTunes subscription service. People pay $50 or more a month for cable TV, $8 a month for Hulu or Netflix. But if they want to watch TV programs or movies through iTunes, they must pay per episode or film. It’s costly, and it may be costing Apple revenue and customers. It will be interesting to see if Cook has any plans to change it.

What to expect from Apple's earnings

7. An iPad Mini HD. Too many investors have criticized Cook for launching the 7-inch iPad Mini tablet last fall and thereby “cannibalizing” sales from the more expensive 9.7-inch tablet. Actually, the move was very much in keeping with the Steve Jobs philosophy, which was to be your own toughest competitor. The flaw of the iPad Mini is that, despite the famous Apple ease of use, it has a lower-resolution screen compared with some competitors, and yet a higher price. If Apple is serious about 7-inch tablets, it needs to get best-in-class, as usual. When will this happen?

8. Dividends and buybacks. Apple started paying quarterly dividends of $2.65 per share last quarter. It has committed to spending $45 billion over three years on dividends, stock buybacks and some related taxes on restricted stock. The figure should be much higher. Bonds are in a boom: The interest rates paid by strong companies are minuscule. Apple could afford to issue bonds and give the money back to investors. That would be great for stockholders. It will be interesting to hear what Cook and the team say about their plans.

9. Taxes. Apple, like many U.S. companies, has earned a lot of money offshore and must keep it there to avoid paying hefty U.S. corporate taxes. The U.S. would benefit from any deal that encouraged such companies to bring these billions home. Apple, as a popular stock, could probably do more to encourage such a deal than any other company. Will Tim Cook grab the chance?

10. Mystery ingredient X. What’s next? Where’s the magic going to come from? What is Apple going to produce that people haven’t even asked for yet? It may seem unfair to ask a company to answer a question we haven’t asked — but hey, that’s why they’re paid the big bucks.

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